Managing payroll in the UK healthcare sector involves navigating a complex landscape of NHS pay
structures, diverse employment models, and specific pension rules. From directly employed NHS
staff to locum doctors and agency nurses, ensuring accurate and compliant payroll is crucial. This guide provides a comprehensive overview of your responsibilities.
The first critical step is to correctly determine the employment status of your workers, as the rules
and payment processes differ significantly.
Employees: These individuals work under a contract of employment, common for most staff in the
NHS and private healthcare settings. As the employer, you dictate their hours and they are entitled to statutory rights like holiday pay, sick pay, and pension contributions. They are paid via the Pay As You Earn (PAYE) system.
Locum and Agency Staff: This category includes workers who provide services more flexibly, such as locum doctors or agency nurses. They may be self-employed, work through a limited company, or be paid via an umbrella company. They generally have more control over when and where they work.
IR35 (Off-Payroll Working Rules): Be cautious of the IR35 rules, which are designed to prevent tax avoidance by “disguised employees.” If a locum or agency worker’s engagement reflects employment (e.g., they are managed like an employee and cannot send a substitute), they may need to be treated as an employee for tax purposes. The responsibility for determining IR35 status usually lies with the end client (the hospital or trust). For more on IR35, see JMK Group UK’s IR35 guide.
Unlike construction’s CIS, the core of NHS payroll is the Agenda for Change (AfC) pay system. This applies to the majority of NHS staff, excluding doctors, dentists, and very senior managers who have separate pay frameworks.
Key Features of AfC:
Pay Bands: AfC uses a system of nine pay bands. Each job role is evaluated and assigned to a band, ensuring equal pay for work of equal value.
Pay Progression: Staff can progress through points within their pay band, typically based on length of service and meeting performance requirements.
High-Cost Area Supplements (HCAS): Staff working in areas with a higher cost of living, such as London, receive an additional supplement.
Enhancements: The AfC framework includes nationally-agreed rates for unsocial hours (nights, weekends, and bank holidays) and overtime. For more, see NHS Employers: Pay and Conditions.
If you have direct employees or are paying agency staff via PAYE, you must operate a PAYE payroll system.
Your Responsibilities under PAYE:
Deducting Tax and National Insurance: You are responsible for calculating and deducting Income Tax and employee National Insurance Contributions (NICs) from wages each payday.
Employer’s National Insurance: You must also pay Employer’s NICs on employee earnings above a certain threshold.
Real-Time Information (RTI): You must report payments and deductions to HMRC on or before each
payday using RTI-enabled payroll software. This is done via a Full Payment Submission (FPS).
Tax Codes: HMRC provides tax codes for each employee, which determine their tax-free allowance. You must apply these codes correctly.
Remember, Umbrella PAYE is a form of PAYE payroll that is suited to paying workers in the healthcare sector. We understand that many healthcare workers would be in scope of the IR35 rules and so employment with an umbrella employer can be very convenient and stress-free.
The NHS Pension Scheme is a key benefit of working for the NHS and is a critical component of payroll.
Scheme Membership: From 1st April 2022, all new and active members are part of the 2015 NHS Pension Scheme. This is a Career Average Revalued Earnings (CARE) scheme. Previous schemes
(1995/2008 sections) are now closed to new contributions, but members retain the benefits they accrued.
Contributions: Both the employee and employer make contributions. Employee contribution rates are tiered based on their pensionable earnings.
Automatic Enrolment: For healthcare employers outside the NHS (e.g., private care homes), the standard automatic enrolment rules apply. You must enrol eligible staff into a qualifying workplace pension and make contributions.
You must provide all employees and workers with an itemised payslip on or before their payday.
What a Payslip Must Show:
Payment for Locum/Agency Staff: These workers may be paid through various routes, including agency PAYE, an umbrella company (which acts as an intermediary employer), or directly to their personal limited company.
Tax-Deductible Expenses: Healthcare professionals can often claim tax relief on work-related expenses not reimbursed by their employer. This includes professional subscriptions (e.g., GMC,
NMC), indemnity insurance, and the upkeep of uniforms.
Record Keeping: You must keep detailed payroll records for at least three years from the end of the tax year they relate to. This includes all payments, deductions, and employee information.
Disclaimer: This guide provides a general overview of payroll management in the UK healthcare sector. Tax and employment laws are complex and subject to change. It is essential to use compliant
payroll software and consider seeking professional advice from an accountant or payroll specialist to ensure you meet all your legal obligations. For tailored support, contact JMK Group UK.
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